A financially troubled U.S. hotelier hit hard by the pandemic plans to protest its property taxes and trim capital expenditures to boost its cash on hand and improve its financial position.
Ashford Hospitality Trust, a Dallas-based real estate investment trust with a portfolio of 100 hotels with 22,278 rooms in 28 states, reported stronger than expected third-quarter earnings and hotel performance. But executives told investors its "bread-and-butter" midweek business travel has yet to return, leaving the REIT to pivot its business to new frontiers. President and CEO J. Robison Hays said the company continues to be focused on "aggressive cost-control initiatives" to help drive revenue per available room, which increased in the third quarter by 166% from the same period in 2020.
The REIT's revenue per available room, a key metric in the lodging industry, of $97.99 was down 25.6% compared with the third quarter of 2019.
"We remain encouraged by the continued strength in weekend leisure demand at our properties, and the fourth quarter looks to be building upon our strong momentum with October numbers likely to outperform September numbers," Hays told investors during the third-quarter earnings call.
"We believe our geographically diverse portfolio consisting of high-quality, well-located assets across the U.S. that are approximately 80% relying on transient demand, will be in a position to capitalize on the pent-up leisure and the acceleration of transient corporate demand," he added.
Hays said the rates are close to and, in some cases, higher than they were pre-pandemic in 2019, even with a loss of occupancy, giving his executive team confidence in the future of the industry.
Jeremy Welter, the firm's chief operating officer, said the business customer has been slow to return to hotel rooms but that business has accelerated each month. Compared with 2019, this part of Ashford Hospitality's business was down about 60% during the third quarter.
"We're seeing both higher occupancies on weekends and also a rate premium by as much as $20 to $30 on weekend leisure travel," Welter told investors. "It's a unique scenario that I don't think we have ever seen before in our industry. Of our occupancy, only 5% to 6% is corporate business. It's still a very small percentage of our overall occupancy."
Even as more companies book group travel, Welter said the lead times for bookings remain compressed compared with what they were before the pandemic. Like weekend travel, Ashford Hospitality can keep rates up on group travel business, with the average daily rate being up 3% compared with pre-pandemic rates.
One of the company's largest hotels in its portfolio for group business, the Renaissance Nashville, has seen significant levels of demand with earnings of $6.8 million during the third quarter, exceeding the same period in 2019. The earnings come as the hotel sold nearly 22,000 group room nights.
In addition to waiting for the full return of corporate travel and group business, Ashford Hospitality has made some moves expected to help add liquidity, including refinancing loans, protesting property taxes and delaying certain capital expenditures.
The REIT has lowered its net debt plus preferred equity by $1.1 billion since its debt peak in 2020. The trust was able to refinance the mortgage loan tied to the 390-room Hilton Boston Back Bay hotel in a $98 million deal. The Boston hotel was the only property in the portfolio with a debt maturing in 2022. Executives have also made "significant progress" on the upcoming debt maturity of the Marriott Gateway Crystal City hotel, with the expectation they will soon have an update on the refinancing of its property loan, which has a hard debt maturity in June 2023.
The majority of the hotel loans in the portfolio are considered "cash traps," executives told investors, meaning the REIT is unable to utilize property level cash for corporate purposes.
The trust is also looking at saving costs as a way of adding liquidity to the balance sheet. To date, the REIT has saved $4.5 million on property tax appeals with a 92% success rate. Executives say they are proactively reaching out to local assessors to begin a dialogue before issuing appraised values.
The trust is also keeping a close eye on capital expenditures. The ballroom renovation of the Ritz Carlton Atlanta has been the only major project completed so far this year. Before the end of the year, Ashford Hospitality plans to upgrade eight other hotels in its portfolio, including the Hilton Santa Cruz, Marriott Fremont and six other select-service hotels in the portfolio. In all, the REIT plans to spend between $40 million and $50 million on capital expenditures this year, which executives say is significantly less than what the REIT has typically spent in previous years.
"We haven't put together our capital plans for next year, but there's not a lot of deferred capex," Welter said. "We've gone through our portfolio in pretty good detail. There's not a ton of renovations that we see for next year."